Legal & Regulatory Feature

All Aboard the Opioid Tax BOAT

Jessica Mehta • Fri, April 14th, 2017

On May 24, 2016, a bill to amend the Internal Revenue Code’s Public Health Service Act (PHSA) to impose a one cent per milligram excise tax on opioid sales was read twice before the Senate before being referred to the Committee on Finance. The Committee’s decision is still pending.

The Budgeting for Opioid Addiction Treatment Act, or BOAT, proposes a tax on sales of “active opioids” by the importer, manufacturer or producers, excluding prescription drugs solely for treating opioid addiction. As part of the proposed amendment, the Department of Health and Human Services (HHS) would create a program offering discounts and/or rebates to cancer and hospice patients to guarantee they won’t have to pay the tax.

Currently, the PHSA doesn’t apply any excise taxes on opioids. The proposed bill will also require any increases in federal revenues from the tax post-rebates/discounts to be subtracted before distribution to states. This falls under the Substance Abuse Prevention and Treatment Block Grant program governing substance (including opioid) abuse programs. Outside of substance abuse programs and treatment, opioids are most often prescribed by orthopedic surgeons, dentists, and when treating elderly patients.

HHS must tell Congress:

About the impact on this bill in regards to retail cost of opioids

Statistics on patient access to such medications

How effective the rebate/discount requirement is

How funds are utilized to improve substance abuse efforts

Suggestions for streamlining opioid access for cancer patients, hospice patients, and those in substance abuse treatment

A Penny for Your Opioids

One penny per milligram of opioids might not sounds like much—but America is in the midst of an opioid crisis. CNBC reports that “Americans consume the vast majority of the world’s opioids.” Dina Gusovsky of CNBC notes that Americans use 80% of the world’s total opioid supply, and painkillers are the second biggest pharmaceutical class on a global scale (nipping on the heels of cancer drugs).

Mizuho Securities USA senior analyst Irina Koffler says, “There was [sic] about 300 million pain prescriptions written in 2015 [around the world],” which totals about $24 billion. The U.S.’ cut of that is $19.2 billion. Considering opioid prescriptions can range dramatically from about 12 milligrams – 90 milligrams, the potential revenue from a one cent tax is astonishing. Bill co-sponsor Senator Joe Manchin (West Virginia) estimates that the tax could create between $1.5 – 2 billion annually. Although the U.S. makes up just around 5% of the world’s population, it seems to be gobbling up opioids like candy. And that’s only accounting for prescribed opiates. It’s also a very popular street drug.

To further contrast the opioid disparity, if you take America’s 80% and add in Canada and Western Europe, the total consumption combined is 95%. Assistant professor of medicine and the director of the Pancreatitis Center at Johns Hopkins University Vikesh Singh, Ph.D., M.Sc. says, “The remaining countries only have access to about 5% of the opioid supply,” a troublesome fact—but one that the U.S. might just be banking on.

The majority of (non-Western) countries prescribe opioids exclusively for trauma and acute hospitalization. Surgery, burns, end of life care, childbirth and sometimes cancer or terminal diseases are cause for opioid prescriptions in these countries. That isn’t the case in the U.S., where opioid abuse is rampant particularly in some regions and industries like professional sports. U.S. Surgeon General Vivek Murthy has gone on record saying every American adult “can have a bottle of pills and then some.”

The Opioid Ouroboros

The BOAT tax is meant to help fund addiction treatment in a potential ouroboros-style, self-feeding approach. Those who will potentially be paying the taxes, such as short-term trauma patients, might end up being the exact people who need opioid addiction treatment in the future.

Specifically, Manchin says the $1.5 – $2 billion in funds would be earmarked for residential and outpatient treatment facilities. The funds would ultimately expand into long-term residential treatment programming. Funds for recruiting mental health professionals, increasing their reimbursement, and offering housing, support and employment services to those in treatment as they transition into society are also in the bill’s plans.

BOAT is also designed to fund facilities for newborns suffering from neonatal abstinence syndrome and treatment programs working with “drug courts.” Manchin says:

“A major barrier that those suffering from opioid addiction face is insufficient access to substance abuse treatment. These are people who have recognized that they need help, but have been turned away because there simply weren’t enough facilities, beds, or mental health providers in their community. This legislation will bridge that gap and make sure that we can provide treatment to everyone who makes the decision to get help. I look forward to working with my colleagues to get this bill passed so we can take another step forward in the fight against opioid abuse.”

However, one big concern comes from the patients. How will the BOAT tax impact those who will pay it? The Centers for Disease Control and Prevention (CDC) estimates the average daily dose is 52 milligrams per day. Even though opioids are meant to be a short-term prescription, that’s not always the case.

Would an increase of $15 per month, on average, hurt those who depend on opioid prescriptions—and is there an alternative to the BOAT?

BOAT Mutiny

Family physician and doctor of osteopathic medicine in Upper Darby, Pennsylvania, George Avetian, D.O., is well aware of the opioid crisis. Pennsylvanians are the biggest users and abusers of opioids in the U.S. Dr. Avetian says, “One of the greatest problems in prescribing opioids is the often missed educational opportunity between doctors and patients regarding the potential risks associated with opioid use. This is especially important when patients are on a long-term prescription opioid treatment regimen, and may be unaware of the increased likelihood of developing a dependency due to prolonged opioid use.”

Like many medical professionals, Dr. Avetian sees the need to address opioid usage from a holistic perspective. “The opioid epidemic has no boundaries and our nation’s response needs to be comprehensive,” he says. “We have to work together to adequately address this epidemic.”

Others in the medical field are offering opioid alternatives, such as Stimwave Technologies. Their pharmaceutical drug is designed for long-term pain management and chronic pain, and the Wireless Pain Relief technology is gaining momentum in alternative care circles—especially as deaths from painkiller overdoses are on the rise. With the CDC calling the U.S. “in the midst of an opioid epidemic” with over 33,000 people killed from opioid overdoses in 2015 alone, seeking out alternatives is one solution. Is another solution an excise tax on opioids? Although it’s unlikely that the BOAT tax will deter opioid users and abusers from taking the painkiller, the result of the fund usage may be a step in the right direction towards treating opioid addiction.

Still, one has to wonder if using opioid prescriptions to fund opioid treatment centers is a feasible, long-term approach. What happens to the tax funds if and when opioid prescriptions are no longer rampant?

Unique among his Supreme colleagues, Scalia employed steel trap rhetoric and sardonic logic to measure today’s problems against an 18th century document—the U.S. constitution.

Here are a few of his most memorable phrases.

“It’s not up to the courts to invent new minorities that get special protections.”

“God assumed from the beginning that the wise of the world would view Christians as fools…and he has not been disappointed.”

“In a big family the first child is kind of like the first pancake. If it's not perfect, that's OK, there are a lot more coming along.”

“I even accept for the sake of argument that sexual orgies eliminate social tensions and ought to be encouraged.”

“Is it really so easy to determine that smacking someone in the face to determine where he has hidden the bomb that is about to blow up Los Angeles is prohibited in the Constitution? It would be absurd to say you couldn’t do that. And once you acknowledge that, we’re into a different game.”

"I don't talk about internal court proceedings. A reporter who reports that is either a) lying, which can be done with impunity…or b) had the information from someone who was breaking the oath of confidentiality, which means that's an unreliable person.”

"It's a form of argument that I thought you would have known, which is called the 'reduction to the absurd.’ If we cannot have moral feelings against homosexuality, can we have it against murder? Can we have it against other things?"

In terms of healthcare reform, Justice Scalia did not oppose it per se.

Device Tax Repeal Stayin’ Alive

Walter Eisner • Mon, June 25th, 2012

The U.S. House of Representatives voted 270-146 on June 7, 2012, to repeal the scheduled 2.3% medical device excise tax that is to take effect in 2013.

The vote was bipartisan with 37 Democrats joining Republicans to repeal. There are now nervous Democrats in the U.S. Senate from medical device manufacturing states up for reelection in November who want to show voters they’re looking out for jobs back home.

Bipartisanship, jobs and an American industry that is still leading the world would seem like a good recipe for a compromise to get the bill heard and passed in the Senate.

DOA in Senate?

However, the Democratic-controlled Senate, immediately after the House vote, said through a spokesperson that there would be no hearings scheduled. The White House then jumped in to say the veto pen was waiting for the bill if it reached the President's desk.

It would seem the repeal of the device tax has no chance, but some of those nervous Democratic senators want to revisit the issue before having to explain themselves to voters in the fall.

When the health care reform law, referred to as “Obamacare, ” was being negotiated a couple of summers ago, the medical device industry, led by AdvaMed, successfully negotiated a proposed $40 billion device tax down to $20 billion over ten years. When the midterm elections in 2010 gave Republicans control of the House, device manufacturers redoubled efforts to repeal the tax.

Does repeal have a chance?

Nervous Senate Democrats

Tim PennyFormer Democratic Congressman and deficit-hawk Tim Penny from Minnesota told OTW that it seemed unlikely that the Senate would act on this before the presidential election. But given the noise influential Democratic Senators like Amy Klobuchar of Minnesota and John Casey of Pennsylvania are making, Senate leadership might have to give the bill some acknowledgment to protect those members. Even Massachusetts’ Republican Senator Scott Brown’s high profile Democratic challenger, Elizabeth Warren, is calling for repeal of the tax.

Pennsylvania’s Opioid Guidelines Have National Ortho Impact

Jessica Mehta • Fri, April 7th, 2017

The Pennsylvania Orthopedic Society just updated its guidelines for opioid prescriptions. Nestled within is a lesson for doctors and patients around the country on how to better prescribe these powerful, but addictive medications.

Pennsylvania Governor Tom Wolf, announced the changes on St. Patrick’s Day, March 17, 2017. Standing with him and top doctors from around the state was Professional Football Hall of Famer and former Steelers running back Franco Harris. “This really is an important issue. I’m not sure there is anyone in Pennsylvania who hasn’t known someone with an opioid addiction,” Governor Wolf said at the University of Pittsburgh Medical Center (UPMC) Montefiore news conference.

If that statement sounds shocking, you’re probably not a Pennsylvanian. The Pocono Record reports that 3,505 Pennsylvanians died of drug overdose in 2015—that’s a sharp uptick from just under 2,500 in 2014. Physician General of Pennsylvania Rachel Levine, M.D. notes there were 414 overdoses in Allegheny County alone, where Pittsburgh is located, and although 2016 statistics aren’t available yet, she expects them to be even higher. For 2015, numbers are higher than those who died in a car crash.

Margaret Jarvis, M.D., Geisinger Marworth Treatment Center’s medical director, says, “Pennsylvania is in the midst of a full-fledged epidemic. The prescription opioid and heroin crisis is the most significant public health crisis facing our state today.” In the U.S., doctors prescribed 240 million opioid prescriptions in 2014 alone, usually for popular painkillers like oxycodone, hydromorphone, hydrocodone, propoxyphene and meperidine.

Suzette Song, M.D., orthopedic surgeon and vice president of Medical Affairs at OSS Health in York, Pennsylvania, was on the committee who drafted the new guidelines under the guidance of Dr. Levine. As an orthopedic surgeon, she’s seen the struggle to determine the “right size” of opioid prescriptions, saying:

“In our practice (at OSS Health) we set out to more accurately determine how long our patients were actually utilizing opioids after surgery or sports injury. It became clear that many of our patients were ending up with too many ‘extra’ pills. We, much like the majority of our extremely well intentioned colleagues, were intent on trying to avoid having our patients run out of these medications too early.

Weighing Device Tax on Orthopedics

Walter Eisner • Tue, September 20th, 2011

AdvaMed (the Advanced Medical Technology Association) released a study on September 7 which concluded that the 2.3% medical device tax scheduled to kick-in in 2013 under the Accountable Care Act (ACA), could cost tens of thousands of jobs, almost double the industry's total taxes, harm U.S. competiveness and cause a decline in the demand for medical devices.

The study, prepared for AdvaMed and titled, "Employment Effects of the New Excise Tax on the Medical Device Industry, " was written by Hudson Institute senior fellows Diana and Harold Furchtgott-Roth.

Ms. Furchtgott-Roth was chief economist of the U.S. Department of Labor from 2003 to 2005. Mr. Furchtgott-Roth was commissioner of the Federal Communications Commission from 1997 to 2001, and chief economist of the House Commerce Committee from 1995 to 1997.

Report: Device Demand Will Drop

The authors write that the new excise tax is complex, and will substantially raise the tax burden on the medical device manufacturing industry. In response to the new tax, they argue that prices of medical devices will rise, and consumers and health care providers will pay more for medical devices.

The exact change in prices for medical devices as a result of the excise tax will depend on various economic parameters, but, according to the authors, an estimated half or more of the excise tax will likely be passed along to end users in terms of higher prices.

"Correspondingly, states the report, "the quantity of medical devices demanded will decline in response to the higher prices that include the excise taxes." They estimate that medical device demand would decline between $0.67 and $6.7 billion annually.

They argue that there is no reason to assume that the demand for medical devices is inelastic. "Consequently, the imposition of the excise tax on medical device manufacturers will likely lead to distortions in demand."

New Paying Customer?

The study, however, does not address the expected expansion of coverage for the uninsured and likely larger number of patients with money to pay for new devices.

Healthcare Reform and Orthopedics

Walter Eisner • Mon, April 5th, 2010

President Obama signed the Patient Protection and Affordable Care Act of 2009 into law on March 23, 2010.

President Obama/Wikimedia.orgThe bill's $940 billion price tag will, according to the Congressional Budget Office, trim the federal deficit by $139 billion over the next decade and over $1 trillion over the next two decades.

Thus came to an end the first round of fierce partisan debate where all physicians in Congress voted along party lines. Round two promises to spill over into next fall's elections and the federal courts.

Regardless of one's political leanings or the likelihood of repeal of parts of the new law before its provisions kick in, or, actions by the courts to strike down any parts of the law as unconstitutional, there are provisions in this bill that will have an immediate impact on orthopedic surgeons and the orthopedic industrial complex that supports them.

Those provisions include 32 million new patients with money to pay for services, a new 2.3% device excise tax, new disclosures requirements of surgeon/industry relationships, additional resources for comparative effectiveness research, cuts to Medicare Advantage programs, and the establishment of a payment advisory board to help Medicare cut costs.

Who wins and who loses?

The day after the President signed the bill, two grown-ups from the health care industry went on national news programs to give their analysis.

Former Republican U.S. Senate Majority Leader and cardiologist, Bill Frist, M.D., told MSNBC, "Everybody's a winner." He said, "Hospitals will do well. With an additional $2 trillion going into the system, industry will be pleased."

Another grown-up, Stephen MacMillan, the dean of medical device manufacturing executives told the "Squawk Box" on CNBC that the new device tax will not keep his company, Stryker, from continuing to find ways to innovate. He said that everybody in the health care industry "took their piece" and the company realized it "needed to take some pain."